Lower oil prices set to test U.S. shale drillers: Kemp

LONDON (Reuters) - Some U.S. shale producers claim they can produce oil profitably with prices well below $50 per barrel or even $45 per barrel; the oil market is likely to put those claims to the test.

The Elevation Resources drilling rig is shown at the Permian Basin drilling site in Andrews County, Texas, U.S. on May 16, 2016. REUTERS/Ann Saphir/File Photo

Shale firms have hired an extra 425 rigs to drill for oil since the end of May 2016, more than doubling the active rig count, oilfield services company Baker Hughes says.

Producers have continued adding rigs even though benchmark oil prices have fallen almost $10 per barrel since the middle of February and are now almost $4 below year ago levels.

Rigs have been added at rates comparable to the height of the shale boom between 2012 and 2014 ensuring output will continue growing significantly through the rest of 2017 and into 2018.

The U.S. Energy Information Administration forecasts onshore production from the Lower 48 states will grow by 340,000 barrels per day (bpd) in 2017 and another 500,000 bpd in 2018.

As a result, U.S. shale producers together with other non-OPEC suppliers are expected to capture all of the increase in global oil demand in 2018 and raise their share of the market significantly at the expense of OPEC.

Shale producers and OPEC are now on a collision course, with OPEC curbing production to try to raise prices and shale drillers adding rigs to boost output.

The contradiction will likely be resolved through a drop in oil prices to rein in shale growth.

Oil prices have already declined significantly to curb the drilling boom and put output on a more sustainable trajectory.